F1 revenues to grow near double digits till 2016: UBS

HONG KONG (Reuters) - UBS AG UBSN.VX expects “strong growth” in revenue at motor racing business Formula One in coming years, driven by an increase in the number of races and rising advertising and sponsorship sales, a research note seen by Reuters on Wednesday showed.

Revenue should grow 9.2 percent a year from 2011 to 2016, climbing to $2.37 billion from $1.52 billion over that period, UBS analysts estimated in the report dated May 21.

The growth rate will be lower than the 9.6 percent in the 2003-2011 period, when Formula One added more races to the circuit.

The research note from UBS, one of the joint global coordinators of Formula One’s up to $3 billion planned Singapore IPO, gives a first peek into the finances of a business that has grown into a global franchise with some 515 million TV viewers eager to watch its 20 races that take place in 19 countries around the world every year.

Formula One started premarketing the IPO on May 22, meeting potential investors to gauge demand for the deal ahead of an official launch expected in early June.

Despite expectations the company will price the deal next month, Formula One’s chairman Peter Brabeck told Reuters last week no decision had been made whether to proceed with the IPO.

A slump in Asian equities in the past week has weighed on investors’ demand for new listings in the region, with two major IPOs scrapped in Hong Kong this week and Ascendas Hospitality Trust pulling an up to $626 million offering in Singapore.

Europe’s debt troubles and slower growth in China have turned investors cautious about IPOs, with deal volumes in Hong Kong, Asia’s IPO capital, down more than 80 percent in 2012 from last year. IPOs had their worst start in about four years in the Asia-Pacific region in 2012, with overall equity market activity down about a fifth from 2011.

PROFIT GROWTH

Formula One gets about a third of its revenue from race promotion fees, or money paid by cities such as Singapore or Sao Paulo to host the races. Another one-third of revenue comes from broadcasting rights, with the remainder coming from advertising sales and non-core businesses including transportation of race teams and hospitality at race tracks.

UBS expects the number of annual races to rise to 22 by 2015 from 20 now, driving the growth in race promotion revenue. Advertising is forecast to be an “engine of growth” for Formula One, with the company adding one global sponsor to the race series a year through 2016.

UBS forecasts earnings before interest, tax, depreciation and amortisation (EBITDA) to climb 7.6 percent a year over the same period, reaching $684 million in 2016 from $474 million in 2011.

Adjusted net income is forecast to reach $588 million in 2016 from $358 million in 2011, UBS said.

Formula One will offer stapled securities consisting of equity and units of a shareholders loan. The loan pays a coupon of 10 percent a year and matures in November of 2060.

The shareholder loan, though unusual in Asia, is common for private equity-owned companies and has been used by Formula One in the past to lower its tax payments. Formula One’s net income is adjusted to account for returns investors will receive on the shareholder loan.

Goldman Sachs (GS.N), Morgan Stanley (MS.N) and UBS were hired to lead the IPO. Spain’s Banco Santander (SAN.MC), Singapore’s DBS Group (DBSM.SI) and Malaysia’s CIMB (CIMB.KL) will also act as joint bookrunners on the deal.